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Aimia launches strategic review as it braces for Aeroplan deal to close

A consortium led by Air Canada has struck a deal to acquire Aeroplan from Aimia Inc. for $450 million in cash. (CBC)

Aimia Inc. says its board of directors is conducting a formal review of the company’s strategic options as it braces for a future without its Aeroplan business, its largest source of revenue.

Aimia, which reported its third quarter results on Wednesday, announced that its board has asked management to present alternative strategies for the company, including plans that could see it “as a leading player in loyalty management.” Part of the review involves a committee of independent directors that will consider recommendations brought forward by executives.

“While we have been able to deliver great service to our customers, our shareholders have not seen the same benefit,” chief executive Jeremy Rabe said on a conference call on Wednesday.

“As we invested in global platforms to grow business, the cost base got ahead of our ability to generate new revenue… Our focus now must be on realigning the shape of the business from where we are today, ensuring cost more closely reflects the future revenue mix.”

But what that future revenue mix will be remains unclear as Aimia closes in on a deal for its Aeroplan loyalty program. A consortium led by Air Canada, which includes Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and Visa Canada, announced in August that it will pay $450 million in cash for Aeroplan and assume approximately $1.9 billion in points liability, leaving Aimia with significantly less business. Rabe said the deal is expected to close by the end of the year.

The company’s coalitions business, which includes the Aeroplan program, brought in $1.05 billion in revenues in the first nine months of the year, accounting for 91 per cent of the company’s total revenues.

While Rabe would not go into further detail what the company’s strategic options may look like, he said the company is prepared to “leverage well recognized management expertise acquired through Aimia’s decades long history in loyalty.”

Rabe also pointed to the company’s exit in Indonesia, something he said was announced to customers and the team there over the last two weeks, as “an example of the kind of action we are prepared to take.”

“After executing on that plan over the next 12 to 18 months, we believe our loyalty services businesses will form a great platform for growth in the expanding loyalty marketing sector,” Rabe said.

Kathleen Wong, an analyst with Veritas Corp., wrote in an earlier note to clients that “we continue to see enough risk in Aimia’s future strategic direction, whether the deal is completed or not, that we consider Aimia an unattractive investment.”

“We see risk in how Aimia’s management might use the $450 million cash proceeds,” Wong wrote in the Aug. 28 note, adding the appointment of Nathaniel Flesher as chief strategy officer. Flesher has experience in advising clients in airline, loyalty and travel technology business.

“Therefore, there is a risk that Aimia may use the cash proceeds to develop another frequent flyer program,” Wong wrote.

Aimia reported net earnings of $21.7 million, or 11 cents per common share, in the three month period ending Sept. 30. Its third quarter revenues came in at $372.7 million, an increase of 6.3 per cent from the same time last year.

Aimia’s stock was down nearly 3 per cent as of 2 p.m. ET on Wednesday following the release of third quarter results. The company’s stock has dropped nearly 60 per cent since May 10 of last year, the day before Air Canada announced plans to launch its own loyalty program in 2020, when its partnership with Aimia expired.